Leading Indicators | Interest rates, UK net lending upturn, and Trump’s new tariffs
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UK rate cuts to outpace the US
Market expectations for interest rate cuts in the UK and US continue to diverge. In the UK, despite an expected rise in inflation this year, markets are still pricing in three quarter-point rate cuts, bringing the bank rate to 3.75% by year-end. In contrast, US markets are pricing in only two rate cuts. Economists generally align with the UK’s market expectation of three rate cuts, however, the consensus for the US is limited to none or just one cut in 2025.
UK CRE net lending sees strong start to 2025
Net lending to UK commercial real estate began 2025 on a stable note, totalling £917 million in January. While this was down from £1.28 billion last month it remained broadly in line with the 2024 average. The increase in net lending was driven by a sharp rebound in development financing, which surged from -£28m in December to £185m - the highest monthly level since October 2021.
Mexico and Canada most exposed
President Donald Trump has imposed new tariffs on Canada and Mexico, alongside a significant increase in the levy on China. These tariffs will be amongst the most extensive of his presidency, impacting approximately $1.5 trillion in annual imports. A 25% tariff will apply to all imports from Canada and Mexico, while the tariff on China will be raised to 20%.
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